PetroChina faces $7.8 bn in refining losses

Customers fill up their vehicles at a PetroChina Co. Ltd. gas station in Beijing, China (File Bloomberg)

Updated: Thu, Oct 20 2011. 12 29 PM IST

Beijing: PetroChina, China’s second-biggest refiner, said it will suffer refining losses of more than ¥50 billion ($7.84 billion) this year if fuel prices remain at their current level for the rest of the year.

China’s refiners have struggled as a result of a government pricing system which does not allow them to fully pass on their costs to consumers.

Despite the government caps on refined products, however, PetroChina’s profits from its dominant upstream oil production business have outweighed losses in the refining business. In the first half of this year, it reported ¥66 billion ($10.3 billion) in overall net profit.

PetroChina chairman Jiang Jiemin told reporters on the sidelines of a shareholder meeting in Beijing that the company welcomed reforms to improve the fuel pricing regime in China but said now was not the right time to give individual firms more say in the way they set prices.

Customers fill up their vehicles at a PetroChina Co. Ltd. gas station in Beijing, China (File Bloomberg)

A plan to revamp China’s fuel pricing system was submitted to the State Council, the country’s cabinet, in a bid to bring domestic prices more in line with market costs, Reuters reported last week.

China currently sets retail fuel prices according to the prices of a basket of international crudes over a 22-working-day cycle. Prices are normally adjusted when global oil prices move beyond a 4% range over the period.

Vice-chairman Zhou Jiping said that reforms to China’s resource tax regime would cost the company ¥29 billion per year if crude oil prices stay at around $100 per barrel. The company paid around 4 ¥billion under previous rules.

A nationwide resource tax on domestic sales of crude oil and natural gas will come into effect on 1 November. PetroChina, Sinopec and CNOOC Ltd will pay a rate of 5-10% on oil and gas sales, rather than the previous quantity-based system.

PetroChina faces a total tax bill of more than ¥300 billion this year, with the group company, the China National Petroleum Corporation (CNPC), expected to pay more than ¥400 billion.

The company also said that CNPC’s overseas oil and gas output would hit 100 million tonnes of oil equivalent in 2011, with half of that owned by CNPC on an equity basis, Jiang said.

He said that PetroChina still aimed to acquire upstream assets overseas, while vice-chairman Zhou added that the company was currently looking at potential projects in Canada and Australia.

Jiang also said that China and Russia had “basically agreed” on the route and technological issues for the western section of a cross-border natural gas pipeline project, but the two sides were still unable to agree on a price.

He said that eastern branch of the project would eventually be capable of delivering 38 billion cubic metres a year to China, while the western section would deliver 30 billion cu m.